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The Euro/Dollar remained on a bearish bias since the start of the year, and returned to contact with the 20-day moving average (in dark blue), a bearish short-term trend line. Currency traders remain imbued with the idea that the return to “normal” inflation, on both sides of the Atlantic, will not be as rapid as hoped. Particularly across the Atlantic, after a clear decline in price dynamics, the slowdown is no longer as clear, as the consumer and production price indices showed last week.
“If food prices remain dynamic, particularly for food away from home (+0.5% over the month and +5.1% over 1 year), inflation remains generally concentrated on the “hard core” and more particularly the rents which represent almost two thirds of the index”, notes Thomas Giudici, head of bond management at Auris Gestion.
On the ECB side, the chances of a rapid and early rate cut are slim. If April is still on the table, Nomura analysts and strategists are opting instead for June for the scenario of a first loosening of the monetary tap. “We believe that the ECB’s new macroeconomic projections in March, as well as the data released between now and the April meeting, will not be enough to prompt the ECB to start cutting rates in April. Instead, we believe that the Council of governors will ultimately decide to delay the rate cut until the June meeting”, they specify.
“While our base case scenario is that the ECB cuts rates in increments of 25 basis points, we believe that the longer the ECB waits, the more likely it will decide to start its reduction cycle with more aggressive rate cuts. 50 basis points in order to get closer to neutrality more quickly. This is, in our opinion, the most significant risk weighing on our ECB rate forecast”, they add in a note on the European monetary policy.
On the agenda this Tuesday, to follow as a priority the index of leading indicators at 4:00 p.m. This is the first statistical benchmark of the week, after Wall Street remained closed yesterday due to a public holiday (Presidents’ Day).
At midday on the foreign exchange market, the Euro was trading against $1.0800 approximately.
KEY GRAPHIC ELEMENTS
The graphical and technical situation is trending below the 20-day moving average (in dark blue). However, the angle of attack is not very important. This trend line, which is accelerating downward, will conveniently serve as a trailing stop (trailing stop). In the immediate future, the acceleration in volatility reassures us in this graphic scenario.
MEDIUM TERM FORECAST
Considering the key graphical factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD).
Our entry point is at 1.0804 USD. The price target for our bearish scenario is at 1.0436 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0876 USD.
The expected profitability of this Forex strategy is 368 pips and the risk of loss is 72 pips.
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